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This is a string of thoughts on economic debates and issues. Take it for what you will. It's just one man's attempt to reason through the economic problems of our day. All constructive responses are welcome.

(1) The debate on whether capitalism or socialism is more desirable is a nonsensical one, because "socialism" is an imagined state where humans get along perfectly and cooperate at all times, and is thus, not achievable.

(2) The very terms "capitalism" and "socialism" disguise the underlying economic realities being proposed by those who throw the two terms around.

(3) "Laissez-faire", like socialism, is not realistically achievable. Moreover, the term is somewhat non-cognizant because it requires one to make distinctions between "public actors" and "private actors" when both can artificially distort the markets and create undesirable results.

(4) The "free market" is likewise not an achievable goal, but rather, should be thought of as an unknown reality. There is a supply and demand for any good or service, but given the real constraints of the world, markets are never truly "free". For instance, state boundaries might prevent me from shipping my goods to another party in a different nation, without being at a competitive disadvantage. Likewise, an even better example is in transportation; the market might have truly desired a road through Path A rather than Path B, but legalities might have deterred that result. Indeed, private property rights themselves are state-protected and represent an "intervention" in the economy. Hence, the markets always have restrictions that might hinder them from achieving an optimal result.

(5) So if markets always have restrictions, but there is an unknown reality that quietly pulls at the market (representing what would happen in a hypothetical "free market"), then the best we can do as humans is to try to 'discover' the free market result and create structures that allow us to come as close to obtaining these results as possible.

(6) The policies needed to achieve these free market results, however, would be different across circumstances. To come close to a "free market result" in building a transportation system has many more hurdles than creating one in manufacturing widgets. However, this does not mean that we should ignore the benefits of building systems that best meet the needs of the "market spirits."

(7) While I've suggested that "laissez-faire" is unachievable, policies that generally go along with laissez-faire ideology work more often than not. The biggest failures of laissez-faire policies tends to be when its adherents mis-identify a certain action as being 'interventionist', when in reality, it might simply be countering another 'interventionist' system that was created. An example is banking deregulation in the late '90s. The idea is that deregulation was "laissez-faire" an eliminated constraints in the system. However, the advocates of deregulation failed to note that the FDIC's insurance of deposits was a state intervention that made "deregulation" disastrous. This is not a criticism of the FDIC; rather, the FDIC was actually a reaction to how the actions of banks could create market interventions with devastating consequences.

(8) In regards to the above, I haven't actually come up with a great way to regulate a banking system without creating problems. I think all systems will have their flaws. In general, I think our system works fairly well compared to others, but that we created moral hazard by subsidizing home loans, not requiring banks to hold adequate reserves, and ignoring market forces when pricing FDIC insurance fees. Large banks that can devastate an entire economy if they fail, should pay disproportionately high FDIC fees based on the risks they impose to the system.

(9) Economics needs an equivalent of Occam's Razor. It's generally best to have simple structures. However, it's not always possible (as with banking and transportation). This is also not to be confused with having simplistic solutions (i.e. advocating the same solution to every problem regardless of the nature of the problem.)

(10) As I've suggested, promoting "capitalism" or "laissez-faire" seems somewhat non-cognitive to me. People who argue in favor of these things often have good underlying reasons for doing so, but just as often fall back on these labels that are often meaningless or even antagonistic to some people. What is generally true (and more understandable to the layperson) is that interventionist actions by large governments often fail, because top-down decisionmaking often ignores the realities on the ground level. In other words, the people closest to a situation on the ground-level understand it best. Decentralized economic structures are more efficient precisely because of this dynamic. Which is why "small government" generally works best and why lower taxes generally increase wealth (as small entrepreneurs operating on the ground level are more productive than top-down bureaucrats who have less incentive to truly understand the economic realities.)

It appears you've thought about this. It must drive you crazy to know so much about the different approaches to realize none of them are perfect. As you elude to when there were fewer participants, the colonies, the barons of the time drove the government and economy. Today, we have to look at factors of scale and class/caste. Yes, I know this is America and we have poor, middle, upper middle, an upper. That it may be possible to change one situation doesn't negate the system.

"Decentralized economic structures", interesting. You'll have to share your vision of this. Would you agree we have a decentralized government? For example, town or city, county and state governments? Then how do you feel about the federal government? Are government and economies connected?

Humans are not that complicated actually. They will always choose a path of least resistance unless there is a reward for doing otherwise. If the reward is consistent eventually they will get into a habit even without a significant reward.

A key to productive society is to reward productive behaviour and punish destructive behavior. In the US with the financialization of the last 20 years financial games that skim the wealth are rewarded far and above any productive activity and so here we are.

then the best we can do as humans is to try to 'discover' the free market result and create structures that allow us to come as close to obtaining these results as possible.

I cannot believe the "free market' result is the best we can do. I think it very often proves to be the worst we can do.

Is it your belief that the "free market" result would offer top quality healthcare to 98% of a population or just 10%?

I really enjoyed your post, and I think it needs to establish terms we all agree with or at least are willing to accept as a goal of the "best we can do" and not be miles apart because we all do not have an agreement upon what "the best we can do" actually looks like.

For example, at any given time in the US there is at least 5% unemployment, but it is typically different people being unemployed for a short term. Disregarding welfare and disabled people for the moment does "the best we can do" mean that these people and their kids gets top quality healthcare, or "does the best we can do" reserve that for the few who rise to the top 20% leaving the rest toiling, for something less?

Is it your belief that the "free market" result would offer top quality healthcare to 98% of a population or just 10%?

Steven,

Thanks for your response.

My question to you would be how would we provide "top quality healthcare" to 98% of the population? That would be seemingly impossible, because if it were provided to 98% of the population, it would by definition not be "top quality". It would be average quality or even below-average quality.

But I haven't really argued what a "free market result" would be for a healthcare system, so we're really only taking about semantics on this issue. Admittedly, I also don't claim to know how to design a healthcare system that best meets the needs of the most people.

I do, however, believe I have more insight into the housing market. If you take a look at our experiments with governmental (i.e. top-down) schemes to provide housing for the poor, most of them have failed. Whereas, our attempts to allow more decentralized decision makers more power to provide solutions to the poor have worked much better.

Case in point, look at the housing markets in NYC or DC vs. the housing market in Houston, TX. NYC imposes rent controls and has a lot of arbitrary regulations on building that are based on the flawed idea that building upwards is undesirable (in fact, NYC's upward building boom came prior to the 1930s, when they began enacting more prohibitive regulations). DC is somewhat similar, in that no high-rises are allowed in the entire district. Whereas, Houston, TX has no zoning ordinances and does not interfere very much into the building market.

The result: rents in NYC and DC are stratostropic, whereas Houston is a very affordable city to live in. In fact, you could probably live in a luxury high-rise in downtown Houston for about the same price of living a slummy apartment in Newark, NJ. Of course, there are some other factors at play here (including NYC's geographical restrictions) --- but typically, this pattern holds true throughout America, with the cities that have imposed schemes to help the poor having the highest real estate costs and the cities that have followed a more decentralized approach, being the most affordable.

This isn't to say that decentralization is always the best approach, but I think in the vast majority of situations, it is. The transportation system is one area where a great deal of centralization is needed to be efficient.

I can't really agree with most of your hostility towards the free market. I believe you associate it with policies that have resulted from mercantilistic government policy. For instance, if you look at the labor movement in the United States, it was particularly strong prior to WWII. This isn't a coincidence. That was also the Golden Age of Mercantilism for the US.

Mercantilistic policies typically redistribute wealth from the lower end of the income spectrum (via weaker purchasing power) and shift it to owners of capital (i.e. the wealthy). This is because mercantilistic policies allow capitalists to maximize their profits (with government aid), but also limit the entrance of goods into the country (driving up consumer prices above natural levels). The wealthy can generally afford to deal with slightly higher consumer goods prices; particularly since they get the fat share of the profits. The poor are the ones hurt by it.

So mercantilism naturally results in maldistributions of wealth. And labor unions were a reaction to this redistribution of wealth, in order to allow laborers to earn their "free market" wages; rather than the manipulated market wages they got under mercantilism.

It's also not a coincidence that the gap between the rich and poor were highest in the 1920s and the current age in the US. Except, this time, the mercantilism isn't coming from the US, but from East Asian nations (particularly China). East Asian mercantilistic policies have killed lower- and lower-middle income jobs in America. Meanwhile, greater opportunities to return higher returns on capital have increase the wealth of the rich.

It's slightly different this time, in that middle income consumers have benefitted from slightly lower prices on goods. But the wealth gap is all too familiar.

I'd argue we have a rather chaotic governmental structure, with unclear lines of delination. It has some elements of decentralized governance, but also many elements of centralized governance.

If I had my way, we would eliminate the current system and replace it with a city-state system, where the US was divided into about 400 to 500 "metro-states", based on cities or region. For instance, instead of having California, you'd had a San Francisco/Oakland Metro State, a Los Angeles Metro State, a Sacramento Metro State, etc. My general belief is that democracy only works on a local level; which is actually consistent with James Madison's beliefs, as well. It's just that over time, we've drifted far away from this idea.

I think we still have quite a bit of vestiges of this decentralized system of governance, but it's slowly been eroded with the Cold War and the War on Terror, which have create a more centralized and militaristic state, less capable of meeting the needs of its citizens.

> If I had my way, we would eliminate the current system and replace it with a city-state system, where the US was divided into about 400 to 500 "metro-states", based on cities or region.

However, if you look at the history of ancient times or middle ages where there have been periods of powerful city-states: Greece, Germany, Italy, Asia. They kept fighting with each other and prosperity and piece where achived only after centralization , which provided economies of scale and the end of infighting. In every case the final stahe has been an empire (current US stahe), then collapse due to overextension and then more or less dark age and cycle started all over again. It appears after the empire stage a collapse and cleansing of some sort are required to shake some survival sense back into people.

However, if you look at the history of ancient times or middle ages where there have been periods of powerful city-states

Russiangambit, only is you assume I'm advocating independent city-states, rather than "city-states" under a united umbrella.

The Roman Empire was, more or less, composed of a bunch of "city-states". (They weren't technically "states" but neither are the "states" in the United States.) The United States originally started with this model, but veered away into larger "Empire-States" (if you will).

Also, for what it's worth, the Renaissance occurred when Europe was divided into a lot of different city-states, even though they were warring with each other. Generally, many of the most economically prosperous areas have been small states (e.g. the Netherlands, Luxumbourg, Singapore, Hong Kong, etc.)

The major benefit of larger states is that it provides a large "free trade area", which is one reason why the United States is an economic powerhouse. Even a "mercantilistic US" would still have a large amount of free-trade between various areas of the nation.

But once again, I'm not advocating the elimination of the United States government (and hence, the large free trade area). I'm advocating a reformation of the state system.

Why do you have two separate categories for capitalism and laissez-faire? If it ain't laissez-faire, isn't it something else.. like mercantilism, crony capitalism, fascism, or market socialism? I'm not aware of any non-laissez-faire capitalism.

If I had my way, we would eliminate the current system and replace it with a city-state system, where the US was divided into about 400 to 500 "metro-states", based on cities or region. For instance, instead of having California, you'd had a San Francisco/Oakland Metro State, a Los Angeles Metro State, a Sacramento Metro State, etc.

This is a fragile system in that the city states are individually too weak and can be conquered by a slightly more powerful agressor, who uses their resources to conquer the next one.

The Oakland/SF metro area, PLUS the LA metro area, PLUS the Sacramento metro area, PLUS the San Diego metro area? 2 senators. California would be the 7th largest country in the world by GDP, but it has 1/3 the representation of CT, RI and DE in the Senate.

As far as capitalism vs socialism, there is a useful number that economists use, called "G." "G" is the number of dollars of GDP that the government directs the expenditure of, annually, instead of those dollars' expenditure being directed by the owners or producers of that capital. G runs about 45% of GDP in the US, year in and year out, so I like to think of the US as 55% capitalism, 45% socialism. In 2010, GDP was 14.6 trillion; Federal G was 3.8 trillion, and then there are the states and local expenditures.

The senate was set up like that to give the small states some the ability to keep from being steamrolled by the few high population states. The founding fathers were well aware of the tyranny of the majority.

Why do you have two separate categories for capitalism and laissez-faire? If it ain't laissez-faire, isn't it something else.. like mercantilism, crony capitalism, fascism, or market socialism? I'm not aware of any non-laissez-faire capitalism

I'd define "capitalism" as any system where the means of production is privately owned. A nation with a mercantilist economic philosophy could still be capitalist under this definition. It's just that the state uses its powers to pick winners and losers under mercantilism.

It's all semantics, I suppose, but my view is that this is a more useful definition from a historical perspective. I'd define 16th Century England and 19th Century America as "capitalist" even if both had mercantilistic economic philosophies.

Conversely, I'd define "laissez-faire" to be an economic philosophy that advocates non-interference by the state in matters of commerce.

Lets consider "top quality" to be "best available", and lets not ask "according to who?" for now.

The intent of the question is to discover what you think "the best we can do" is going to look like? Everybody thinks they want to see "the best we can do". It sounds awesome, but it is undefined. Today the "best we can do" is used to sell policys that only promote the best some other subset of we can do. For example, treating capital gains income as special and by taxing it at a lower 15% is the "best we can do" if "we" is the subset of American that has capital gains income. It is not neccessarily "the best we can do" if you include people who do not have capital gains. In fact, because it limits the money that Government has to redistribute to them, it may be the worst we can do for that subset.

I also think you have this chronologically backwards. I think high costs come first, then an attempt to help the poorest comes second.

but typically, this pattern holds true throughout America, with the cities that have imposed schemes to help the poor having the highest real estate costs And I am not sure about what I highlited in bold being what you meant to say. These do not seem to be two different things, They seem to be the cities, considered both centralised or decentralised, realising affordable and unaffordable results. and the cities that have followed a more decentralized approach, being the most affordable so for now just focus on the chronology. I do not believe civic minded persons have ever said "everyone's doing great, let's subsidize their housing". Federal Housing intervention came outof the poverty of the depression and succeeded so well that Fannie and Freddie were privatised in the 70's. So does local interventions. Someone with some authority or influence observes people living in squalor and tries to help them. Perhaps that someone observes children living in poverty, working for almost nothing and being beaten to death. Perhaps that someone observes that the practice is so pervasive that they can convince other persons that the benefit of cheap labor is worth enough to them to see children beaten. So as a group they decide that they will not allow it and pass laws against beating children, or finding that difficult to police and the practice of beating children so pervasive that they find the only workable solution is to ban child labor.

That person whose character allows him to beat children, is still out there. He will try to justify it to himself and to me, he might even tell me the child chooses it in order that I allow it, he will hide it away from my sight, but he is still out there.

What you called my "hostility toward free markets" is hostility toward the politicians both elected and the unelected and privately financed, that encourage policys that cannot manage that truth.

Your first four points acknowledge the truth that there has never been a truly pure form of any political view be it Socialism or Capitalism, and that there has always been a blend either legally or not.

Your fifth point says that you believe that trying to achieve "free market" results is the best we can do. So it is important to establish what that free market result would look like. I think it looks like a society of owners and slaves, with some slaves better rewarded by their owners than others, but in the end not owning anything, whether they are enslaved by violence or debt.

So what country currently most resembles you picture of a "free market" result? David in Qatar offered me Qatar as an example. This is a country that Nationalised its oil industry, and is currently spending that money on transportation, hospitals and other civic goods. But nationalising 2/3rds of America's economy is not the policy most "free market" advocates are suggesting. In fact they seem to accuse Venezuela of being Socialist and equating that with "bad" for trying the same thing.

So it is important to me to make sure that when I buy "free markets" I know what it is supposed to look like and accomplish. Because if it is debt slavery for the vast majority, I don't want it.

As I've said from the intro, the "free market" is an abstract reality where forces of supply and demand are perfectly harmonized without distortions from either logistical concerns, public actors, or private actors. It would take place under "perfect competition" and no one would be able to make an "abnormal economic profit".

A lot of these terms are frequently used in economic discussion, but you would have to be familar with economic theory to understand the meaning of them.

There's no "free market country", because, as I've said, a "free market" is an abstract goal. Not an implementable reality. My major criticism with many modern economic theories is that they assume the free market is an implementable reality and that it "looks like [xx]."

So, in my view, you can only approximate a free market result. The US and Canada are probably best at approximating free market results in most goods.

Areas where I believe the US does not approximate a free market result very well are transportation (heavy subsidies and regulatory issues which have skewed the system towards highway and road construction vs. mass transit), housing (too many subisidies encouraging home ownership vs. renting; also encourages suburban sprawl vs. upward urban building), real estate (property tax schemes discourage upward building), construction (NIMBYist ordinance discourage upward building), and health care (distorted market where medical providers gain abnormal economic profits and consumers have to pay to abnormally high costs).

Canada's health care system is better than the US's, but far from perfect. However, Canada is worse than the US on construction and real estate.

You could probably throw Australia on to the list of countries that appoximate a free market well, too.

I'd leave off all Eurozone nations because the Euro itself distorts the markets heavily. I'd probably throw in a few European nations on the "good list" otherwise.

Most of the Middle Eastern nations have a "rigged market" in my view, where the government favors certain classes of people. This is another example of where I criticize laissez-faire. Some of the Middle Eastern nations have what appears to be a laissez-faire policy, but there's a lot of government favoritism behind the scenes. The government favoritism constitutes an "intervention". However, I couldn't comment on Qatar in particular, as I'm less familar with it.

Many of the East Asian nations also manipulate their currencies, which then creates major ramifications on their markets.

Some of the Latin American countries are developing systems that are better approximately free market results, but have had poor results in the past.

Most nations have flaws in this regards. Sub-saharan African nations (with some major exceptions such as Botswana) have very dismal records in approximately free market results, as their markets are almost totally riggged. Which is why sub-Sahara Africa is full of some of the poorest places on Earth.

Your point number six, still presumes that "free market" results are worthwhile goals while suggesting that either free market results or worthwhile results may not always be achieved by non intervention into markets. I am not quite sure how you mean that part, but I would agree that worthwhile results - or what I consider to be worthwhile results - require intervention to be achieved, but are still not the equivalant of free market results and that is an important distinction.

In #7 you correctly identify this media/message problem concerning incorrectly identifying "interventionist" policys but precede it with the unsupported idea that "going along with laissez-faire ideology works more often than not". Neither was FDIC's insurance of savings deposits "disastrous". The 2007 bailout/deregulation that allows banks to risk them in equities will be.

As to #8, I do not think "our system works fairly well compared to others, but that we created moral hazard by subsidizing home loans, not requiring banks to hold adequate reserves, and ignoring market forces when pricing FDIC insurance fees" although I would agree that "adequate reserves" would have restricted the harm they could do. I also think "moral hazard" wass created by allowing personal gain to creat to great an influence on the execution of the public lenders by privatising them and allowing their executives to profit from the lending, rather than keeping them on payroll.

#9 I agree in principle with Occams razor. For example if you feel it is worthwhile to restict fossil fuel consumption, the simplest thing is to ignore it and let it happen. But then the poorest suffer through no fault of their own, which also happens if you simply restrict it. Humanity and compassion demand to some of us that we address that. So the second choice becomes to tax its consumption and redistribute those taxes to help mitigate the harm at the expense of those who have benefited most intentionally or otherwise from when that harm was allowed to develop. Purely silly is hoping that a third party will address it for you especially if it someone who believes that he has enough resources to not worry.

And finally 10,

Interventionist actions by large Governments often succeed too. But once again we are limited because we have not defined what success looks like. Lower taxes have not been shown to icrease wealth, they have been shown to concentrate it. One thing lost from the discussion of whether lower taxes increase wealth, is the possibility that lowering taxes from 90% to 69% might have a different impact than lowering taxes from 39% to 15%.

Once again at the end you assert that "small government" works better. My question is still where?

You view this from a subjective lens of whether "I like the free market results" vs. "I don't like the free market results." I believe that's a flawed way of conceptualizing things.

The "free market" is a scientific reality. It represents what people are willing to give up in resources in exchange for something else. This is not a changable reality. In most cases, it's not a fully knowable reality (since we can't read minds or make precise measurements of it, but can merely observe things in an actual marketplace and make projections based off of that).

Whether I like the results of a hypothetical free market is irrelevant. It's like saying "I don't like gravity."

Hence, it's difficult for me to respond to your criticisms because you began with a completely different assumption. You assume that the laws of supply and demand can be melded to your own liking. I'd argue that this is like trying control evolution. You can selectively breed some animals to your liking, but that doesn't mean they'll be able to effectively adapt if you throw them out into the wild.

I would not describe your attitude as "pragmatic" at all. Many of the measures you support have had the complete opposite affect as the one intended. That's not "pragmatic". That's ignoring reality.

Religious fundamentalists and moral crusaders have tried to legislate away prostitution, drugs, and sex outside of marriage. All attempts at this have failed. In fact, the Drug Was has increased the prevalance of drugs and violence in the US.

Likewise, many people have tried to legislate away poverty, wage differences, and the like. All attempts at this have inevitably failed. Most have resulted in more poverty. Detroit was one of the most aggressive places in trying to use top-down approaches to "solve poverty" and it's no coincidence that it's had the one of the worst economic sitautions in the US over the past several decades.

Once again, it's easier to survive on a lower income in Houston, TX than it is in New York, NY. Yet, it's clear that New York has more government programs in place to ensure that the poor can survive. Why is this?

Because private actors have been dramatically more effective at lowering costs and meeting market demand than government actors using a top-down approach.

Now, you might ask why has Canada's single-payer healthcare system been more effective than America's system? I'd argue it's precisely because Canada's single-payer system approximately a free market result more closely than America's ill-designed system (that only gets worse with Obamacare).

You might view it as government intervention that succeeds. I don't really disagree in that case, but it's important to understand the context behind the "intervention." There were already major government interventions in the prior system. As I state in my arguments, government interventions are both typical and necessary sometimes.

Intellectual property rights are an example of government intervention. Were they necessary? I'd argue "yes" --- without IP, no one would have incentives to develop pharmaceutical medications that can be copied very easily. But that distorts the health care market in various ways.

So how do you compensate for that? There's not a single "correct" answer, but some answers are better than others. In my view, the US has devised a really terrible answer on that question. Canada's approach works better. But then again, one that took away many of the layers of government excess would also improve the system.

What's almost certain is that Obamacare won't make things any better. All it will do is eliminate competition and impose taxes on lower-middle income people, that put them in a worser position than they were before.

But let's be clear --- must of the people supporting these measures view "the poor" as some abstract concept and just assume any scheme they devise to "help them" will automatically work.

Please do not ascribe to me moral crusaders have tried to legislate away prostitution, and sex outside of marriage as measure I have supported. I have neither time nor energy to concern myself with who you have sex with. Those are not this liberals concerns, typically I equate those crusades with right wing religous fundamentalists.

It is not a fact that the drug war has increased the use of illegal drugs in the United States, it is a fact that advertising has increased the used of legal drugs in the United States.

It is hard to believe that nothing else factors into the NYC high cost of living besides Giovernment intervention. The financial center of the world sucking in money and driving up real estate prices might have something to do with it, or geography, or 7% more retired folks than houston. Or the fact that NYS has paid more into the federal gov than we have gotten out, while Texas is a net recipient of Federal spending until very recently, and will be again very soon. It is also possible that you are completely wrong and more people in texas forgoe health needs than in NY and that might be a little harder on them than you seem think.

Yes, I view canda's healthcare interventions as more succesful than ours.

Intellectual property rights are an example of government intervention. Were they necessary? I'd argue "yes" --- without IP, no one would have incentives to develop pharmaceutical medications that can be copied very easily. But that distorts the health care market in various ways.

it is almost as though you believe that helping cure the plague did not motivate any of the millions who saw their friends and neighbors and children dying. Nope, they just sat on their butts until someone paid them.

Actually I have discussed before and demonstrated, that almost all original research is Government funded. One of capitalisms major flaws is that it cannot afford to fail. This leads to lying about test results, which in turn leads to administering drugs and treatments that are not effective or in some cases more harmful than the diseases they are trying to cure. gardasil and avandia come to mind off the top of my head, but there are more. The dependence upon intellectual property rights and profits is the major driver of the medical industrys flaws, not it its successes. nobody lies, cheats or steals for money if they do not expect to get money.

President Obama's healthcare will make some things better. it will save money vs what was before, it will make insurers honor their sales pitches a little better. it s not going to save as much money or improve care nearlt to the level of the best half a dozen models that exist and that may cost Obama the Liberal vote if the repubs can find someone who is not a complete nutjob. Your best is Romney, but he implemented Romney care in Mass and if Obama had promised me that, which is what Obamacare is, he would not have gotten my vote in the primary. Plus Kucinich was not on the ballot.

It is kind of amazing though. While we cannot even agree on some basic facts, or Government intervention, we can both agree that Canada's healthcare outperforms America's for less money, and would be a marked improvement. I am sorry we cannot agree to simply work for that.